Do You Know Carl Levin?

Joseph Saluzzi ( and Sal L. Arnuk ( are co-heads of the equity trading desk at Themis Trading LLC (, an independent, no conflict agency brokerage firm specializing in trading listed and OTC equities for institutions. Prior to founding Themis, Sal and Joe worked for more than 10 years at Instinet Corporation, pioneers in the field of electronic trading, and at Morgan Stanley.


Carl “Shitty Deal” Levin gave us some of the financial crisis’s best and most riveting television since the May 6thFlash Crash. Who can forget his questioning of Goldman Sachs executives? Well, we wish to highlight Senator Levin for two reasons this morning: 1) his Senate Subcommittee’s Anatomy of a Financial Collapse report was released yesterday (which again lambastes Goldman’s behavior, as well as other big banks), and 2) his April 8th Comment Letter to the CFTC SEC Joint Advisory Flash Crash Committee Findings. As we are sure you have already seen the widespread media coverage around his Anatomy of a Financial Collapse report, we would like to focus your attention on his Flash Crash Finding Comment Letter. Unlike other politician’s (we have named those before) shallow and thinly-veiled shill letters paid for by lobbyists for flash orders, the Levin comment letter is through and well thought out. He is concerned about loopholes:

-“A firm that enters orders that it never intends to have executed should not be able to avail itself of any incentives for providing a meaningful two-sided market.”

-“Proposed rules should include anti-evasion authority to prevent market-makers from effectively achieving the same result as when they provide stub quotes or other far-off market quotes that are of no value to the price discovery process.”

While the CFTC/SEC report recommendations are a step in the right direction, Senator Levin has concerns.

-The SEC and CFTC should consider expanding limit up/ limit down to broad based futures and options.

-In the event of a trading pause, perhaps the CFTC should evaluate whether restarting the market after a 5 second pause is enough. Is 5 seconds enough time for human wisdom to intervene?

-Circuit breakers need to be coordinated across all related markets. And why should circuit breakers stop at 3:30pm? Isn’t that when frequently the day has the most substantial volume?

-Incentives for market makers to stay in during times of stress are important, and should be further evaluated. In addition, perhaps the NBBO should be adjusted for access fees!

-“Regarding naked access, while some clearing firms may be willing to accept risks associated with providing essentially an unfiltered pipeline into the markets, other market participants should not have to bear the burden of those risks.”

-“New rules to prevent disruptive trading should explicitly apply to trade order activity – in addition to completed trades – because orders can and do affect market prices.

-The SEC and CFTC should implement rules with sufficiently broad authority to preven and punish a wide range of manipulative and disruptive activities. The rules should clarify that the regulators have the authority to prohibit any order or trading activity that may be detrimental to the normal price discovery process – not just those from “extremely large orders or strategies.”

-“There is no automated surveillance that aggregates trading from all market venues. Currently, regulators are not even capable of meaningfully screening for cross-venue manipulations. In fact, a representative of FINRA told the Permanent Subcommittee on Investigations that “it is very plausible that certain market participants, knowing the extent of current regulatory fragmentation, now consciously spread their trading activity across several markets in an effort to exploit this fragmentation and avoid detection.”

Senator Levin’s letter is excellent. It shows he is not just accepting of what industry insiders say the rules should be. He is delving into possible loop-holes, and it shows that he cares that the Flash Crash never happens again. We thank Senator Levin and his staff. We hope he continues to follow the example of Public Servant Ted Kaufman.

-Sal Arnuk

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